The EU said on Wednesday (20 July) it will no longer debate whether or not China’s economy is market driven, but will instead focus on new measures to tackle Chinese dumping and illegal subsidies.

The controversial issue of Market Economy Status (MES) matters because it means that partners will have to treat communist-ruled China as a free market equal when it comes to settling trade disputes.

China says that when it joined the World Trade Organisation (WTO) in 2001, it was promised the status by the end of 2016, a move opposed in the 28-nation European Union as letting Beijing off the hook over a long series of disputes ranging from steel to solar panels.

The European Commission announced plans on Wednesday (16 March) to speed up trade defence cases against cheap imports from China and urged EU member states to stop blocking measures that could set higher duties against dumped and subsidised products.

Meeting on Wednesday (20 July), the European Commission agreed the bloc would have to meet its WTO obligations regarding China’s membership, but at the same time it should draw up plans to “maintain a strong trade defence system”.

EU Commissioner for Jobs, Growth and Investment and Competitiveness Jyrki Katainen told reporters “we should forget this phrase” when asked if that meant granting market economy status to China.

“It is better to forget this concept because our approach is entirely different,” Katainen said.

He stressed the new proposals would ensure EU companies had the same level of protection and redress against Chinese dumping and illegal subsidies as now.

The European Union’s call to step up measures on imports of Chinese steel products will not solve the problems facing the global steel industry, but will affect the international trade order, China’s Commerce Ministry said on Monday (21 March).

EU Trade Commissioner Cecilia Malmström said the new proposals, to be detailed later this year, will be “country neutral… this new methodology will lead to roughly the same level (of protection) as today”.

Earlier this week, the EU lodged a complaint at the WTO over Chinese curbs on exports of key industrial materials, prompting a sharp response from Beijing that they were entirely legal.

At an EU-China summit in Beijing last week, European Commission President Jean-Claude Juncker warned the EU would use all means to protect itself from a flood of Chinese steel imports.

China makes more than half the world’s steel and is accused of massive dumping as its own market slows sharply, but premier Li Keqiang said the problem was not “triggered by any one country”.

China is the EU’s second largest trading partner after the United States but the government, nominally Communist, still plays a central role in directing the economy.

Positions

Axel Eggert, director-general of the European Steel Association (EUROFER), said, “Chinese overcapacity should not be confused with the granting of MES to the country. They are distinct issues. The concern is rather that prematurely according the status would give Chinese producers an even greater unfair competitive advantage.

“Straightforwardly, MES must not be granted so long as China does not visibly meet each of the EU’s five market economy criteria. So far China has overcome just the first of the EU’s five economic tests. To ensure that economic rationality – rather than political expediency – is put at the heart of the eventual decision, any MES proposal should enshrine in legislation these established market economy criteria.”

Milan Nitzschke, spokesperson for AEGIS Europe, a grouping of nearly 30 European manufacturing associations, said, “Without the five EU market economy criteria firmly in place as a legal reference, there is no way to apply a meaningful alternative anti dumping methodology under China's WTO Accession Protocol. An unstable compromise would severely risk investment and jobs in the EU industry. It’s not only about steel but every sector manufacturing in Europe.”

Background

The EU’s five economic criteria are:

Elimination of barter trade in the economy

Government non-intervention over allocation of resources and decisions of enterprises

Transparent and non-discriminatory company law (adequate corporate governance)

Functioning property law & bankruptcy regime

Genuine & state-independent financial sector

Further Reading

Policymakers are struggling to find the way forward to preserve a future for the European steel industry, once a bedrock of the bloc’s industrial economy, which is currently facing the most serious crisis in its history.